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Romania central bank delivers quarter-point rate cut

BUCHAREST, Aug 5 – Romania’s central bank cut its benchmark interest rate by a quarter point to 1.50% on Wednesday and pledged to continue providing market liquidity in the face of the uncertainty caused by the coronavirus pandemic.

The surprise rate cut will be enforced from Aug. 6, when its lending and deposit facilities will also fall by a quarter point to 2.00% and 1.00%, respectively.

The bank has so far delivered three rate cuts worth 1 percentage point overall since March. The European Union state has reported 56,550 coronavirus infections and 2,521 deaths.

Policymakers said they aimed to further ensure market liquidity. The bank has bought nearly 4.8 billion lei ($1.18 billion) worth of treasuries from the secondary market by end-July. The daily average stock of bilateral repo transactions was also 4.8 billion lei in June and July.

A majority of analysts polled by Reuters had expected the bank to hold fire on interest rates this month, although several expected cuts by year-end.

On Wednesday, the bank said it expected inflation to climb slightly in July before stabilising in the upper half of its 1.5-3.5% target range until the end of the year.

Policymakers will release new inflation forecasts on Thursday. They currently see annual inflation at 2.8% and 2.5% this year and next, respectively.

“The uncertainty surrounding the new macroeconomic projections continues to be extremely elevated,” the bank said.

Major sources of uncertainty included the resurgence of coronavirus cases, the effectiveness of stimulus measures and fiscal policy ahead of local and parliamentary elections.

Even before the pandemic, Romania’s economy was struggling with rising budget and current account deficits. The government has said it plans to raise pensions by a smaller percentage than the massive 40% approved by a previous government.

The Romanian leu was flat versus the euro. ($1 = 4.0612 lei) (Reporting by Luiza Ilie; Editing by Alison Williams)

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